You might want to look at OpenVZ, which is completely free, although it is limited to running Linux.
The OS running inside the virtual server has to be licensed. For example, Windows Server 2003 R2 Enterprise Edition allows you to run the OS on a physical box and then have 4 virtual instances of it on the same box. So depending on what your running, you'll have to check the licensing for the details.
So while the Virtualization software is free, the OS might not be, although you are free to run Linux as a guest.